Reduce Ecommerce Merchant Account Chargebacks by Your Customers

If you manage an online store offering products or services for sale you probably know what a merchant account is. Without one, your business does not have the ability to process customer credit cards. But are you familiar with chargebacks?

A chargeback is a disputed transaction by a customer and is also referred to as a reversal. Chargebacks are a form of protection for customers by their banks (issuing banks) against fraudulent transactions. As soon as a complaint is filed, the bank begins to investigate the claim.

Chargebacks tend to be higher for online businesses, and they are a killer to merchants. Even if you have a merchant account and have been processing credit cards for some time, it’s possible to lose it. If your customers aren’t happy or simply don’t recognize a charge on their account, they may be tempted to call their bank and charge it back.

Even after a complaint has been investigated and ruled in favor of the merchant and no credit has been issued to the customer, the merchant may still be charged additional fees.

All Chargebacks Matter

A chargeback rate greater than 2% can be enough to get a business’ merchant account closed. Put another way, if as little as 2 customers out of 100 have a problem with your business, your business may be out of business!

Often when a merchant’s credit card processing services are terminated, they will land on what is known as the TMF (terminated merchant file), and it can be nearly impossible to get a merchant account again. That’s why it’s important for businesses to be diligent when dealing with customers.

Here are some reasons chargebacks occur and some important actions merchants can take to prevent chargebacks:

Fraudulent Transactions

This is the most common chargeback. These complaints occur when a customer’s card is charged without their authorization and when they simply forget they made a specific purchase.

If a customer’s credit card information has been compromised and the merchant processes a transaction prior to the customer reporting a lost or stolen card, the merchant is still responsible. Merchants processing online transactions should always verify that the billing address matches the shipping address. Of course there are reasons for the address not to match, but in these cases it does not hurt to contact the customer for safe measure.

In some situations, customers see a transaction on their bank statement and do not remember the purchase. The first reaction may be to consider it fraud and file a complaint. In order to prevent these types of chargebacks, it is key to make sure that the business’ short name or identifier is identifiable when it appears on the customer’s bank statement. Having an identifier consisting simply of numbers is not a good idea.

Wrong Merchandise, Items Not Received & Returns

If a customer receives the wrong order or the merchandise is not what they expected they may be inclined to contact their bank. This is especially so when customer service is not on top of the situation. As soon as a customer complains to a merchant regarding the order, it is critical for the merchant to immediately address the issue.

The same holds true for customer returns. When merchandise is returned, a merchant should process the credit as soon as possible in order to prevent the customer charging back the order.

It’s a no brainer to understand that when items are not received by the customer, it can lead to a chargeback. Although less frequent, this does happen. As a merchant, be sure to confirm the shipping address and, again, handle complaints right away.

Technical Glitches

Technical glitches between banks can sometimes occur in which the customer is charged twice for the same transaction. This is also known as duplicate processing. A merchant processing a high volume of transactions may not recognize these occurrences.

Despite this honest mistake, the customer’s first reaction may be to contact their bank and dispute the charge.

It may not be feasible for a merchant to review each transaction and specifically look for these mistakes, but when they happen, it’s critical for a merchant to investigate these customer claims immediately.

Be Diligent

Sometimes there is nothing a merchant can do to prevent a chargeback. But keeping up with your customer service and staying on top of customer complaints is invaluable in protecting your merchant account and ultimately your entire business.

If you have questions about chargebacks or merchant account services in general, give us a call at The Transaction Group. We’d be happy to help.